Mexican Congress approves historic energy bill


Associated Press

MEXICO CITY (AP) — Mexico’s Congress voted Thursday to open the country’s moribund state-run oil industry to private investment after a raucous, 20-hour debate over the most dramatic energy reform in decades.

The 353-134 vote in the lower house all but guarantees that President Enrique Pena Nieto will achieve the crowning piece of his first-year reform package, allowing the government to grant contracts and licenses to private companies to explore and drill for oil and gas. His other reforms have dealt with areas including education, taxes and telecommunications.

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Such oil contracts and licenses are currently prohibited under Mexico’s constitution. The state-run oil company, Petroleos Mexicanos, or Pemex, has had a monopoly since the sector was nationalized in 1938, and the country’s oil has been seen as a symbol of sovereignty ever since.

The bill now has to be approved by the legislatures of 17 of Mexico’s 31 states.

Opponents say they want to bring the reform to public referendum and fear that multinationals, especially from the U.S., will once again gain the sort of control they had over Mexico’s oil before 1938 .

Mexico is one of the top five crude exporters to the U.S., shipping more than 1 million barrels a day.

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A group of leftist lawmakers seized control of the House of Deputies on Wednesday, using chairs and tables to block access to the chamber in a failed attempt to block discussion of the measure. The debate and vote went on in another room.

“The homeland is not for sale! The homeland is to be defended!” they shouted while holding protest signs and Mexican flags.

One congressman of the leftist Democratic Revolution Party, Antonio Garcia Conejo, undressed during his speech at the podium to illustrate what the reform would do to Mexico, calling it a “plunder of the nation.”

The bill, hashed out by Pena Nieto’s Institutional Revolutionary Party and the conservative National Action Party, would allow contracts for profit- and production-sharing as well as licenses under which companies would pay royalties and taxes to the Mexican government for the right to explore and drill.

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Private companies could post reserves as long as they specify in contracts that all oil and gas belongs to Mexico. The constitution would continue to prohibit oil concessions, considered the most liberal kind of access for private oil companies.

The bill is viewed favorably by oil analysts, who say a major change is needed to turn around Mexico’s oil industry, where production has declined, and where Pemex hasn’t had the finances or expertise needed to tap the country’s vast deep-water and shale reserves. While oil output has been rising in the U.S. and Canada, Mexico’s production has fallen 25 percent since 2004 despite increased investment.

Supporters say a better energy sector could add at least a full percentage point to Mexico’s annual growth rate, which was scaled back dramatically this year from a projected 3.5 percent to 1.3 percent. Backers also say it will be a boon to all three countries, the U.S., Canada and Mexico, in the North American Free Trade Agreement.

“We are going to be able to develop services and competencies in dealing with energy that are transferrable from one country to another, ” Thomas Donohue, president of the U.S. Chamber of Commerce, told The Associated Press. “They all have some differences in commodities and have their own regulatory systems, but all of it will be in the context of a lot oil, a lot of gas, a lot of coal and a fundamental ability to attract manufacturing, to improve supply chain and to drive the creation of jobs and economic growth.”

Barclays Research, part of the Corporate and Investment Banking division of Barclays Bank, says the process of accessing and producing Mexican oil will be slow. Pemex estimates it needs more than $60 billion a year in investment to explore reserves, and currently gets about $24 billion.

“We have to recognize that this is an important effort in a historic sense. However, the challenges are huge because of the amount that has to be done to implement the reform as it is designed,” said Michelle Michot Foss, head of the University of Texas’ Center for Energy Economics.

Another concern among many is the level of corruption in Pemex, whose powerful labor union has a bloated workforce. The union is run by Carlos Romero Deschamps, whose family is famous in Mexico for its ostentatious lifestyle. Pemex has an estimated 155,000 employees, of which about 101,000 are unionized, according to Mexico’s Center for Economic Investigation and Education.

Romero Deschamps, who is also a senator for Pena Nieto’s Institutional Revolutionary Party, was initially in favor of the reform proposal, which barely touched Pemex or the union. But in a last-minute change approved by both houses, the bill effectively removed the union’s representation on the Pemex board of directors. Romero Deschamps walked out of the Senate and didn’t vote.

The bill also calls for mechanisms to prevent, detect and punish corruption in all new contracts, though the specifics must be worked out in what’s known as the secondary laws.